May 26, 2020

On May 19, 2020, the White House unveiled Trump’s executive order (“EO”) that instructs federal agencies to consider the economic effects of the current pandemic in undertaking enforcement and regulatory compliance. The EO means that the USEPA will, more than likely, revise its recent March 26 general guidance related to enforcement during the pandemic.

The EO directs agencies to promote “regulatory relief” during gradual reopening of the economy. Specifically:

The EO requests agencies to issue guidance to the regulated community on how each agency plans to “decline enforcement against persons and entities that have attempted in reasonable good faith to comply with applicable statutory and regulatory standards, including those persons and entities acting in conformity with a pre-enforcement ruling.”

The EO authorizes agencies to formally identify and invoke emergency authority under current law to modify existing regulatory requirements.

The EO directs agencies to revise their procedures in administrative adjudications to, among other things, reflect that the government bears the burden of proving an alleged violation rather than the subject of compliance being required to prove compliance.

For the regulated community, the EO provides a basis for arguing for pandemic relief in enforcement proceedings and settlements.

In that regard, the US EPA’s March 26, 2020, guidance is subject to litigation filed in the Southern District of New York, by various state attorneys general and environmental organizations, in New York v. EPA, No. 20-cv-03714 (S.D.N.Y May 13, 2020), and Natural Resources Defense Council v. Bodine, No. 20-cv-03058 (S.D.N.Y. Apr. 16, 2020).

In the Enforcement and Compliance Report, from FY 2007 to FY 2018, inspections decreased by thirty-three (33) percent and enforcement actions decreased over fifty (50) percent %. That trend is continuing in the USEPA’s fiscal year 2019 in 11 of 15 compliance monitoring and enforcement measures.

The decrease in enforcement is not explained away merely by referring to a decrease in resources (i.e. budget cuts). It runs deeper. The Enforcement and Compliance Report, however, sheds light on this declining trend.

February 04, 2020

Nike began an internal investigation in 2017 into allegations that some of its executives had made illegal payments to athletes. The internal investigation went on for over one year. Then in March 2019, “celebrity” lawyer Michael Avenatti raised the allegations to Nike while allegedly trying to extort millions of dollars from Nike presenting text messages, e-mails and other evidence of the illegal payments.

Avenatti is now on trial for the extortion allegations. During the trial the DLA Piper lawyer for Nike that conducted the internal investigation, testified that the internal investigation had not uncovered the text messages, e-mails and other evidence Avenatti presented at the March 2019, meeting.

The take away, I guess, is that when you are hired by a client to do an internal investigation and even if you think you are doing a thorough job, it is quite possible you missed a whole lot. You need to be vigilant as people will affirmatively try to hide and destroy evidence that implicates them; that people may engage in fraudulent behavior in the face of an internal investigation (as that is exactly what happened in one internal investigation I headed up – we uncovered the fraudulent behavior and the attempted cover-up).

August 21, 2019

Enforcement by the USEPA is down by just about any metric measuring the enforcement of environmental laws. This has left an enforcement void. But that void is being partially filled.

Environmental groups and enterprising plaintiffs’ firms are now using the citizen suit provisions of the Clean Water Act as a business model. And it seems that California is leading the way. Numerous sixty-day notices have been served on businesses. In one instance, the requested damages of $200,000,000.00 are being sought. SeeLunsford v. Arrowhead Brass Plumbing (No. 16-cv-08373, N.D. CA).

The Clean Water Act authorizes citizens to hold regulated entities accountable through private actions in federal court for violations of the Clean Water Act. Any penalties assessed against the defendant must be paid into the United States; however, the Court can also order a losing party to pay attorneys’ fees to the plaintiff’s firm that brought the case. In a lot of instances, it is nothing more than a form of legalized extortion (settlement pressure is high when there is a possibility of penalty amounts up to $51,570.00 per day).

The latest iteration of these Clean Water Act citizen suits target rain-induced discharges that are alleged to be in violation of “general permits” that regulate a broad range of conduct contributing to stormwater runoff rather than activities unique to a specific facility. They also include allegations of deficient Stormwater Pollution Prevention Plans or SWPPPs which are generally required by the general permits.

If you receive a sixty-day citizen suit notice, I would welcome the opportunity to discuss strategies for responding to the threatened litigation.

March 22, 2019

The news this week was on the Intercontinental Terminals Company plant in Deer Park, Texas – and it was not good news. A fire, potential air exceedances, release of water and foam used to fight the fire – in general, a huge mess.

So now what happens? Based on the premise that the only difference between a criminal violation and civil enforcement is who gets to your door first, preparation is key.

The first action should be (after making sure everyone is safe) is to begin the internal investigation to determine what happened, if there was fault who’s was it, and any potential root causes. The internal investigation will allow the entity to be a responsible corporate citizen. Other benefits will allow the entity to address liability (to agencies and third-parties), take remedial actions and figure out if there is a way to prevent future issues.

For all of this, pre-planning is a must. And a couple of things flow from this:

The company should have a written policy on internal investigations. It does not have to cover the specific event; however, there should be a policy in place.

The internal investigation should be structured as a legally privileged investigation and should be all-inclusive. You can always choose late to waive the privilege, but a non-privileged investigation cannot later be made privileged.

Are there governmental agencies/regulations/orders that require an investigation? Think the Pipeline and Hazardous Materials Safety Administration or the Chemical Safety and Hazardous Investigation Board.

What will the investigation include? Will it include Root Cause Failure Analysis?

In line with Item 2 above, the investigation should be managed and directed by outside counsel as this will eliminate many questions regarding whether the investigation is legitimate or not.

Initial decisions impact the internal investigation through the end of the investigation. The goal should be a thorough, high-quality investigation that addresses the issues while ensuring the appropriate protections.

January 16, 2019

I have previously blogged about the use of passwords on cell phones and how there was an issue with using finger prints of biometrics as your password (as opposed to an actual password).

Now, consider In the Matter of the Search of a Residence in Oakland, California, Case No. 4:19-mj-70053-KAW, in the United States District Court for Northern District of California. A federal magistrate judge, Judge Kandis Westmore, has ruled that law enforcement cannot force a person to unlock a mobile phone with their face or finger. Other courts have previously held that law enforcement could force a person unlock a mobile device with biometrics (fingerprints, facial recognition or irises) as biometric features, unlike passcodes, were not “testimonial.” Judge Westmore found that the government did not have the right, even with a warrant, to force suspects to incriminate themselves by unlocking a device with biometrics. The rationale seems that since a suspect would have to willingly and verbally give up a passcode, the suspect should also have to be willing to give the biometrics. A “password” has been deemed “testimony.” Body parts have not been previously deemed “testimony.”

From my perspective, this indictment continues a trend that began shortly after the September 11, 2001, terror attacks: the criminalization of industrial accidents. Could Arkema been better prepared for the after-effects of a hurricane? Perhaps. Was industry as a whole prepared? No. Interestingly, the federal agency responsible for the enforcement of the environmental laws has not criminally investigated Arkema to the point of indictment. And interestingly, the TCEQ was not involved in the investigation either. The investigation was solely that of the Harris County Sheriff’s Office, the Houston Police Department’s Environmental Investigations Unit, and the Harris County District Attorney’s Office Environmental Crimes Division.

The company and the individuals have all retained excellent counsel. And I am sure one of the first things the counsel will do is check and see if the TCEQ was consulted. Section 7.203 of the Texas Water Code requires a peace officer investigating an alleged environmental violation by a person who holds a permit from the TCEQ to refer the case to the commission before a criminal prosecution can begin. Tex. Water Code Ann. § 7.203 (Vernon 2010). In other words, before a peace officer may refer an alleged criminal environmental violation to a prosecuting attorney for criminal prosecution, the peace officer must notify the TCEQ in writing for the TCEQ to determine whether civil or administrative duties will adequately and appropriately address the violations. Id. A peace officer must follow this procedure anytime the alleged criminal environmental violations involve a person, or an employee of a person, who holds a permit issued by the TCEQ and the activity constituting a violation is related to the activity for which the permit was issued. Id.

Time will tell, but if I was a betting man, I am willing to bet that this procedure was not followed.

Brian Charette shot the grizzly bear as it was harassing horses in a pasture behind his rural home. The government indicted Charette on one count of “taking” a threatened species in violation of the ESA. Charette was convicted in a bench trial before a magistrate judge and the report and recommendation was affirmed by the district court. Charette then appealed. There were a number of issues raised by Charette that were rejected by the Ninth Circuit; however, ruled that there was an error in how the trial court handled the affirmative defense of self-defense.

The ESA provides, at 16 U.S.C. § 1540(b)(3), that a defense to the “taking” is “if the defendant committed the offense based on a good faith belief that he was acting to protect himself or herself, a member of his or her family, or any other individual, from bodily harm from any endangered or threatened species.” The trial court ruled that good faith must be determined using an “objectively reasonable standard.” The Ninth Circuit disagreed, holding that the standard only required a subjective belief in the need to protect oneself or others. That standard would be “satisfied when a defendant actually, even if unreasonably, believes his actions are necessary to protect himself or others from perceived danger from a grizzly bear.” As a result, the case was remanded to the trial court to make a determination in applying the subjective standard. In the original trial, Charette had elected not to testify in support of his claim of self-defense. He will now get an opportunity to rethink that decisions.

June 13, 2018

When I first started practicing environmental law in 1987, I read the book “America’s Future in Toxic Waste Management: Lessons from Europe” by Bruce W. Piasecki and Gary A. Davis. In the book, they discussed the difference in philosophies between European environmental enforcement theories (the carrot) and the United States’ philosophy (the stick).

My good friend, Brent Fewell, with the Earth and Water Group, recently posted on Facebook, regarding the current administration’s attempts to use the “carrot” approach to enforcement – that is, (and I am paraphrasing somewhat here) give non-compliers notice that they are noncompliant, give them sufficient time and the tools to come into compliance, warn them of the consequences of continued noncompliance and then if the regulated entity fails to heed the advice and take advantage of the leniency, then drop the hammer.

Generally speaking, I am in favor of that approach. The question then becomes, how are the noncompliant entities going to come to the attention of the agency? Inspections are down, there are fewer agency employees, federal grants to state agencies are drying up, cooperative federalism only works so far, state agencies do not have the budgetary luxury of picking up the enforcement slack. So how will the noncompliant company come to the attention of the agency? In some sense, this approach provides an incentive to be in noncompliance, especially if it gives the regulated entity a competitive advantage.

On June 11, 2018, E&E News published an article entitled “Trump's EPA Turns to Less Punitive Responses to Pollution” by Mike Soraghan, E&E News reporter. In essence, the article was setting out that the “enforcement initiatives” were going to become “compliance initiatives.” “The plan is to give state governments more authority in setting priorities for enforcement programs, according to a memo obtained by E&E News. Officials also want to remove from the priority-setting process considerations about consistency and using penalties to maintain a ‘level playing field’ for companies.”

Observing this from my vantage point, that approach will further weaken a substantially reduced enforcement agenda. The states are simply not equipped, or qualified, to deal with issues that cross state borders or affect entire regions of the country, if not the entirety of the country. While the oil and gas industry complained about the enforcement efforts launched after the Obama administration made "energy extraction" an enforcement priority, imagine the cacophony of the vagaries of enforcement by North Dakota, by Louisiana, by Texas, by Alaska and by Pennsylvania. According to the article, “Inspections of ‘energy extraction’ sites dropped by one-third in EPA Administrator Scott Pruitt's first fiscal year, according to EPA's website.”

There are a plethora of issues that scream for national enforcement (clean water, drinking water, clean air). And while these areas need a national approach and an incentive approach to compliance may work, there are way too many issues to leave to state enforcement or state-only input. Some states are unwilling to undertake enforcement against industry that supplies a significant tax employment base. State agencies also will not consider a broader picture. Clean water, clean air, safe drinking water and its enforcement may very well take divergent paths in different states as the different states will have different budgetary constraints as well as interests.

The agency that watches over an industry may lose its way in its efforts to present a friendlier face. Then again, that is just my opinion.

March 08, 2018

In State of Texas v. Morello, the Texas Supreme Court reversed a mid-level appellate court and reinstated a trial court’s judgment making Bernard Morello personally liable for approximately $400,000 in civil penalties for environmental violations.

The Company’s History of Permit Violations

Morello had been the sole member and manager of White Lion Holdings, a limited liability company. The State alleged that White Lion consistently violated its hazardous waste permit. Based on these violations, the State received a judgement of a similar penalty amount against White Lion, which was affirmed in a separate appeal.

Morello’s Personal Involvement

The State also sued Morello, individually. The State alleged, and the courts agreed, that Morello was the sole decision-maker for the limited liability company. Moreover, Mr. Morello personally removed water treatment equipment from the facility, and was responsible for having monitor well protective housing caps discarded. The trial court determined that this involvement was enough to make Morello personally liable for the civil penalties. Neither

“Fraud” nor “Tortious” Acts Required

The mid-level appellate court had reversed the civil penalty award as to Morello. That court reasoned that Mr. Morello did not individually participate in tortious or fraudulent acts, and therefore, as an agent of the limited liability company that owned the facility, he could not be held individually liable.

The Texas Supreme Court rejected that argument and reversed the mid-level court. The Supreme Court examined the Texas environmental statutes and determined that the State could hold an individual liable without proving fraudulent or tortious acts by that individual. Morello was the sole decision-maker. He personally removed water treatment equipment and had monitoring well protective housing caps discarded. These circumstances were enough to make Morello personally liable for the civil penalties.

Decision Makers Can Be Liable for Allowing Violations

The Supreme Court’s discussion of personal liability suggests that an individual who is the sole decision-maker for a corporation or limited liability company will generally have civil liability for the environmental violations of the entity, because Texas law states that no person shall “cause” or “allow” environmental violations.

At least as to civil penalties, individual managers should expect that they can be held liable if their decisions constitute causing or allowing violations of Texas environmental laws, even if the entity owning the facility or holding the permit is a corporation or limited liability company.